Follow the money: Interpreting U.S. Bank v. Congress

My decision to write last week about a recent trial court ruling out of Alabama, U.S. Bank v. Congress, has generated a fair amount of follow-up commentary from various sources since it was first published, and a ton of emails and phone calls. For those that read the original commentary, I called out Yves Smith at Naked Capitalism more than once.
Yves has since fired back, and I’m going to address her latest talking points in this commentary in an effort to help readers interpret what is really going on.
In December, I wrote the following when it came to alleged chain-of-title issues and their impact on borrowers:

I don’t begrudge Yves Smith for holding her own viewpoints — and, frankly, nobody ever really knows with any certainty how a judge is going to rule on any particular case. She, and those that share her views, might yet win the support of the judiciary. Or perhaps the view I’ve outlined here, or some variant upon it, will win out. Or, probably more likely than not, there will be trial court rulings all over the place for years until appellate rulings finally begin to bring more clarity to this subject.

Despite this, Yves tries to suggest that in writing about the Congress case I was claiming “Mission Accomplished,” attempting to associate me with an infamous Dubya moment during the far-from-over war in Iraq. Nothing could be further from the truth.
Always follow the money
Yves spends a fair amount of time suggesting that the effect of the Congress case elsewhere will be muted, if it has any effect all. In attempting to minimize the relevance of this case, however, what she misses is an important reality: that the defense here saw fit to mount one in the first place.
And not just a vanilla defense, either — in the Congress case, we saw what lawyers would call a “robust” defense, and a targeted and planned use of a novel legal argument, too. That the defense here saw fit to spend hundreds of thousands of dollars on litigation over an ejectment action in a trial court in Alabama speaks volumes on its face about what the defense believed this case could have meant should it have prevailed.
Otherwise, why spend the money?
I can guarantee every reader of this column that the defense didn’t double down on this lawsuit, bringing in big name (read: expensive) experts from New York, thinking the outcome of the case would have no relevance elsewhere.
That’s only being said now, after the case didn’t go as planned, in an attempt to minimize the outcome. If I’ve learned anything over the years, it’s this: always follow the money. And that’s as true in law — perhaps even more true — as it is anywhere else.
Us vs. them, and other myths
That such a novel, complex argument was brought into such a seemingly insignificant legal setting, also hints at an interesting underlying legal strategy: Someone — who, I don’t know — wanted to build a groundswell of case law in his or her favor while nobody was likely to pay attention, providing ammunition for higher-profile (read: big money) cases at a later date.
In many ways, the plight of the distressed borrower is a convenient lever to pull if — for example— you’re a buyside Wall Street firm that decided to load up with cheap nonagency mortgage-backed securities in the wake of the market's collapse, betting on a mechanism that could open the door to damage claims and settlements worth more than the securities themselves. Or maybe a mortgage insurer looking for novel ways to repudiate claims en masse.
I’m not at all suggesting that’s what went on here, but I am suggesting that people start to wake up to the reality of how Wall Street really works — because many Americans are still being played like a fiddle. There is no "us vs. them," in the end.
Morality and the accompanying emotions to that noble love of justice are simply a varnish for the fires of greed. In other words, everything is about the money, and if you can find a viable angle to make more of it than someone else. And I mean everything.
The angles here have clearly gotten considerably more complex in the nonagency space after the likes of Kyle Bass made out like a bandit a few years back, with a far more straightforward play. But to that point, I know of more than a few buyside firms that took on a trade of loading up on non-agency securities during 2009 and early 2010 in the hopes of then being able to force buybacks at a profit.
That trade has nothing to do with concern for the borrower. Zero.
As a result, it would be fascinating to learn who really bankrolled the defense in this particular case. Sometimes defense attorneys will put up their own money to defend a case like this — it’s not unheard of — but it’s far from the norm.
Paul Jackson is the founder of HousingWire. The views expressed here are entirely his own, and do not reflect the views of HousingWire or its media affiliates. Follow him on Twitter: @pjackson

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